2019 was marked as a year with biggest retail sales volume than ever before. But the face of industry changed as well. According to Business Insider Intelligence, in 2019 ecommerce sales surpassed 10% of total retail sales for the first time ever.
Where to start. Initiated by COVID-19, businesses experienced overnight digitization or digitalization whilst restructuring their business models, creating new categories and possibilities for incremental profit. Amid the protocols inputted by Public health representatives, new rules, old and new consumers, suppliers and competitors, there stood the traditional retailer.
The End of an Era?
According to a research done by McKinsey, by 2010, the fast-moving-consumer-goods (FMCG) had created 23 of the world’s top 100 brands and had grown total returns to shareholders almost 15% a year for 40 years.
Nowadays, retail industry is facing reinvention since confluence of new trends, imposed even prior to COVID-19, are forcing the retailer to change the game or leave the field.
Let’s go back to the beginning.
How did FMCG create their value?
January 2019 McKinsey report shows that the FMCG business is based on the following 5-step value-creation model.
- Mass-market brand building and Excellence in the developed market base:
Constant focus on innovation that generated incrementality. Who remembers the launch of Ariel laundry pods? Well it used to be an innovation asking for incremental share and it demanded impeccable execution. Now it is just another way of doing your laundry.
- Hunting in developing markets:
FMCG companies like to place their flag on yet undiscovered grounds by bringing the best technologies to a new market early so that they can ensure local relevance. In the period 2007-2017, 75% of revenue growth in FMCG was from developing markets.
- Good relationships with grocers that provide access to consumers:
Innovation + excellence at in store execution served on the bed of broad distribution has been a best-case scenario since.
- Operating model that drives consistent execution and cost reduction.
Centralization processes have helped streamline costs, whilst the general expenses are usually 4-6% of revenue in FMCG.
- Mergers and Acquisitions as a stable ground for organic growth:
FMCG companies practiced upgrading of their portfolios with new brands which then they blended within their distribution and business practices that would grow those brands and categories.
And then what happened?
What happened is a combo of Amazon, Amazon’s M&A, industry long tail growing with small brands at its biggest expansion, lack of data driven marketing, millennials effect and shopping habits, healthy food/diapers/cleaning supplies/everything craze, fresh food re-definition, perception and lifestyle.
New value creation model according to McKinsey
Traditional model needs to freshen up. Well, this was known far long before COVID-19 so let’s not blame the crisis. McKinsey presented a new value creation model as a three-part portfolio strategy enabled by an agile operating model.
Over the period of lockdown, online shopping has exploded. People, especially those that are at risk groups, shopped for groceries even online. What we noticed is that COVID-19 accelerated Direct-to-Consumer Model as online deliveries went up. Talking about statistics, this time produced by research done by IRi; In Italy, online delivery is usually only 1% of the market but at its peak on 8th April this had risen by 221% year-on-year. Similar scenario was going on in Spain and France.
Digitization is not only important with consumer behaviour but also in productivity. In-store retail technologies are improving store processes and thus- improving productivity. Retailers today have more access to operational data than ever before. Moreover, e-commerce and digitally influenced offline sales are growing. Research has shown that by 2022.
Artificial intelligence – new way to create money and improve productivity
Research from the McKinsey Global Institute has shown that the retail industry could derive global benefits from AI worth $400 billion to $800 billion—more than any other industry. One thing the McKinsey argues is “digital intimacy”. Or we can freely translate it to Artificial intelligence. Or, putting it into plain words: capturing data and using it for better decision making among all those disruptive factors.
To succeed in a market that has never been more competitive, a retailer will need access to privileged insights, will have to be able to automate processes and create impeccable customer experience.
RED AI- AI: Retailer’s Productivity booster
It is quite logical to ask ourselves what the path is through and which actions do we need to take. RED AI is our product, and AI software that enables FMCG companies detect, classify and control their and competition’s SKU’s with single picture taken from mobile device.
It is a ladder to digitization of store visits. There is no more manual shelf share measuring, since RED AI does it for us. It is also user friendly so your sales rep doesn’t need to spend time figuring out how to handle the app AND in case there is no Internet on the spot, data can be synced later.
With RED AI we reduce the time of visit to each store by 40%, which in the end results with greater productivity because, obviously, sales rep can cover more stores in his route plan!
By increasing productivity of one’s sales reps, we invest time saved toward boosting your profit.
More on this topic in the upcoming webinar. Stay tuned!